“If you fail to plan, you are planning to fail!” Benjamin Franklin
I was having lunch with a friend, an experienced businessman, and I asked him what he thought was the defining difference between a new venture succeeding or failing. He replied, “A good business plan.” We agreed that a good business plan is one that provides as much information as possible in as few words as possible. We then discussed what a good business plan would include.
We suggest an outline and approach for creating a business plan.
the purpose: State your company's purpose in one positive, declarative sentence.
problem: Show the problem your company is trying to solve and how that problem is currently being addressed.
Solution: Demonstrate how your idea dramatically solves a problem and improves the lives of your users.
timing: What's going on in the world today, the trends, that makes the timing of your idea perfect.
market: Identify how big your overall market potential is, who your typical customer is, and what percentage of your typical customer is likely to buy your idea.
Competitors: Who are your competitors currently in your target market, and what benefits do you offer to entice customers to switch?
Product development: What do you need to do to protect your product or idea from piracy?
business model: Marketing, sales process, pricing, distribution, pricing, account size, revenue growth.
team: Who are the founders and management team responsible for executing the plan? Who is the board of directors to protect outside investors? Who is the advisory board to support management and provide expertise?
Financial Model: At least three years of (a) profit and loss, (b) balance sheet, and (c) cash flow projections. If you are attracting outside investors, you will need a term sheet outlining the ownership structure and the amount of ownership each individual will have.
This process may seem a bit daunting, but I can assure you it's well worth it once you get started. If you're buying an existing business, the process is pretty much the same. I've seen so many businesses that use the “build it and they will come” strategy, but don't think about it – it doesn't work. Another common mistake I've seen is taking “shortcuts” by ignoring any of the steps above. This is usually “short-lived”.
As you begin your journey, it is important to find and engage experienced, successful financial and legal advisors.
I wrote my first business plan in 1989 for the business I started that year. The plan wasn't as solid as I had hoped and I struggled a lot in the beginning. I wish I knew then what I know now.
Patrick Burke is president of The Burke Group, a Rochester-based retirement plan consulting and administration, actuarial services and compensation consulting firm. Contact him at [email protected].
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